Lawyer’s Starting Salaries

The chart summarizes the starting salaries for lawyers who graduated from law school in 2006. One reason the bi-modal structure is so jarring is that it demonstrates that measures of central tendency, such as average or median, are not necessarily reliable guides for law students’ future earning power. In conventional labor markets, that disconnect is rare.

In 2006, 44% of graduates received entry-level salaries in the $40K to $60K range; the second mode, over on the right side of the graph, was at $145K. This makes for a huge salary gap, with relatively few entry-level lawyers making salaries between the two extremes.

That’s from a post by Willilam Henderson over at the Empirical Legal Studies blog (July 18, 2008), here.

What makes the 2006 distribution even more striking is that it’s such a departure from the distribution just 15 years earlier:

What’s going on here? What happened between 1991 and 2006? Henderson sees this trend as an unintended consequence of the operation of the “Cravath system.” That’s the strategy of

builid[ing] human capital by hiring the best students from the best schools and providing them with the best training. At the end of a multi-year tournament, the best associates are promoted to partner. …In recent years, however, the surge in demand for corporate legal services has outstripped the supply of one key input – elite law school graduates. The ensuing salary wars have significantly increased the cost structure of large corporate law firms and undercut clients’ willingness to pay for associate training. These trends are unsustainable. More significantly, clients are unhappy and searching for ways to control costs.

For a paper by Henderson analyzing this situation and offering some ideas about how to avoid it, click here or follow the link in his post.